Tax News

CCH (cch.taxgroup.com) reports:

  Governor Michael F. Easley signed North Carolina's budget bill, thereby enacting numerous changes to corporation franchise and income tax, personal income tax, sales and use tax, insurance gross premiums tax, and property tax changes. These changes advance the Internal Revenue Code (IRC) conformity date; require a corporate and personal income tax addback adjustment for any federal bonus depreciation deduction claimed; extend, expand, and modify numerous credits against corporate franchise and income taxes, personal income tax, and insurance gross premium tax; enact a new personal and corporate income tax deduction for a qualified sale of a manufactured home community; ease the reporting requirements for publicly traded partnerships; clarify the franchise tax treatment of limited liability companies; revise the franchise tax base for captive real estate investment trusts (REITs); and set the insurance and utility regulatory fees for the 2008 fiscal and calendar years.

  Provisions affecting sales and use taxes (TAXDAY, 2008/07/18, S. 24), and property tax, gift and estate taxes, and practice and procedure (TAXDAY, 2008/07/18, S. 23) are reported separately.

 

CCH (cch.taxgroup.com) reports:

  New Mexico Governor Bill Richardson has proposed his Cash Assistance Relief Effort (C.A.R.E.) package, which contains a number of initiatives designed to provide taxpayers relief from rising gas prices, including a personal income tax rebate, a gross receipts tax holiday during the holiday shopping season, an expanded back-to-school tax holiday, and an increase in the working families tax credit. The proposed C.A.R.E. package will be addressed during an upcoming special session of the New Mexico Legislature, which may be called as early as August.

  Governor Richardson's proposed C.A.R.E. package includes an income tax rebate for all taxpayers. The rebate would be structured according to a taxpayer's adjusted gross income, with a rebate of $150 proposed for taxpayers with incomes up to $60,000, plus $40 for each dependent. Taxpayers with incomes between $60,000 and $65,000 would receive a rebate of $125 for each taxpayer and $34 for each dependent, while taxpayers with incomes between $65,000 and $70,000 would receive rebates of $100 for each taxpayer and $26 for each dependent. Taxpayers with incomes over $70,000 would receive a rebate of $75 for each taxpayer and $20 for each dependent.

  Under the proposed C.A.R.E. package, a one-time tax holiday would run from November 28, 2008 through December 7, 2008. During this period, clothing, school supplies, computers, and Energy Star certified appliances (subject to certain limits) could be purchased without taxes and the limits on traditional qualified tax-free items, including clothing and footwear, would be increased. Governor Richardson has also proposed expanding the back-to-school tax holiday by lengthening the duration from 3 days to 10 days in 2009 and increasing the limits on traditionally qualified tax-free items beginning next year.

  Finally, the governor's proposed C.A.R.E. package would increase the working families tax credit by 25% for tax year 2008. The maximum amount of the credit would increase by $96 to $482 for workers with two or more children, by $59 to $292 for workers with one child, and by $9 to $44 for childless workers.

  Subscribers to CCH Tax Research NetWork can view the full text of the governor's release.

Press Release , New Mexico Governor's Office, July 17, 2008.
 

CCH (cch.taxgroup.com) reports:

  Various prescribed rates for federal income tax purposes for August 2008 have been provided by the IRS. The annual short-term, mid-term, and long-term applicable federal interest rates (AFRs) are 2.54 percent, 3.55 percent and 4.58 percent, respectively. The semiannual short-term, mid-term, and long-term AFRs are 2.52 percent, 3.52 percent and 4.53 percent, respectively. Quarterly short-term, mid-term and long-term AFRs are 2.51 percent, 3.50 percent and 4.50 percent, respectively. Finally, the monthly short-term, mid-term and long-term rates are 2.51 percent, 3.49 percent and 4.49 percent, respectively.

  The short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFRs) for August 2008 for purposes of Code Sec. 1288(b) are 2.09 percent, 3.48 percent, and 4.65 percent, respectively, when annual compounding is used.

  Additionally, the Code Sec. 382 adjusted federal long-term rate is 4.65 percent, and the long-term tax-exempt rate is 4.65 percent. The Code Sec. 42(b)(2) appropriate percentage for the 70-percent present-value, low-income housing credit is 7.94 percent, and the appropriate percentage for the 30-percent present-value, low-income housing credit is 3.40 percent. Finally, the Code Sec. 7520 AFR for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest is 4.2 percent.

Rev. Rul. 2008-34, 2008FED ¶46,523

Rev. Rul. 2008-43, FINH ¶30,591

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶173.02

  CCH Reference - 2008FED ¶176.01

  CCH Reference - 2008FED ¶4385.03

 
Code Sec. 382

  CCH Reference - 2008FED ¶17,115.28

 
Code Sec. 642

  CCH Reference - 2008FED ¶24,308.1885

 
Code Sec. 1274

  CCH Reference - 2008FED ¶31,310.05

  CCH Reference - 2008FED ¶31,310.11

 
Code Sec. 7520

  CCH Reference - 2008FED ¶42,785.40

  CCH Reference - FINH ¶22,630.05

 
Code Sec. 7872

  CCH Reference - FINH ¶18,950.05

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 36,162.05

CCH (cch.taxgroup.com) reports:

  The IRS is losing an estimated $100 billion annually in tax revenues from offshore tax abuses, Sen. Carl Levin, D-Mich., chairman of the Homeland Security and Government Affairs Committee Permanent Subcommittee on Investigations, announced at a July 17 hearing. Ranking committee member Norm Coleman, R-Minn., stated that tax havens hold an estimated $1.5 trillion in U.S. assets, primarily U.S. securities, and that "we have to close this down."

  At the hearing, the subcommittee released a 110-page report on tax haven banks and U.S. tax compliance. The report cited other sources estimating offshore assets of $11.5 billion and annual revenue losses as high as $255 billion. Officials from the IRS and the Justice Department agreed with the magnitude of the problem, though they did not have current information to quantify the amounts.

Bank Abuses

  The hearing focused on two banks, the LGT Bank of Liechtenstein, and the UBS AG Bank of Switzerland. The two banks were accused of coming to the United States to actively promote their tax evasion schemes and recruit U.S. clients. The banks used cloak-and-dagger techniques to implement the schemes such as code names for clients, use only of pay phones, undeclared accounts, encrypted computers, and counter-surveillance training to ward off U.S. Customs and others.

  The schemes relied on "secrecy tricks" to cover transfers and hide the location of assets, Levin said. These included foreign shell companies, fake charitable trusts, straw man settlors and captive trustees, multiple transfers among companies, anonymous transfers, disguised business trips, and the use of foreign credit cards to draw on accounts. U.S. tax laws that require foreign banks to report U.S. assets held for others thus were circumvented by disguising the transfer and ownership of funds with foreign entities.

  The hearing included a videotaped statement by Heinrich Keiber, who worked with LGT. According to Levin, Keiber is now in the witness protection program; he appeared in the tape only as a silhouette. Keiber described LGT's use of special purpose vehicles to camouflage account ownership. LGT creates and owns foundations and entities registered in other countries and manages assets transferred by high net worth individuals, including nonbank assets such as real estate, paintings, and patents. Keiber said that LGT's business practices undermine reforms adopted by Liechtenstein and ignore the "know your customer" rules.

  Levin said the U.S. could "fight to end tax haven abuses" by enacting the Stop Tax Haven Abuse Bill (Sen 681). The bill would penalize tax haven banks that impede U.S. enforcement, require banks that know that U.S. clients own accounts to disclose them to the IRS, and create a rebuttable presumption that U.S. taxpayers control an entity in a Treasury designated offshore secrecy jurisdiction.

  Coleman identified a major loophole in the tax code's qualified intermediary (QI) program, which requires reporting and withholding on U.S. securities: the program does not require the reporting of accounts held by non-U.S. citizens and entities. "UBS undertook a systematic, wide-ranging effort to harvest tax cheats from the United States, help them restructure their Swiss accounts to avoid paying taxes on billions of dollars and to evade the attention of federal law enforcement agencies," Coleman reported.

  However, Mark Branson, the chief financial owner of UBS's Global Wealth Management department, appeared and testified that UBS will cooperate with the U.S. summons served on UBS. He apologized on behalf of UBS and declared that UBS will no longer provide offshore banking or securities services to U.S. residents and will serve U.S. clients only through UBS companies in the United States.

IRS and Justice Take Action

  IRS Commissioner Douglas Shulman told the committee that "tax evaders look for complexity [and that] going overseas adds complexity. Once you leave our countryr, tax evasion is higher and it is easier to hide assets." Shulman testified that he was "outraged" by the tax evasion found by the IRS and the committee and that he had designated international issues as a strategic priority for the IRS.

  Shulman told the committee the QI program "rests on bank cooperation" and that the IRS is taking a number of steps to improve compliance. He recently met with major accounting firms that audit the QI program and proposed that they report fraud. The IRS is reworking the QI regulations to require "look-through" by the banks, he said. "Getting a line of sight is the whole game," Shulman told Levin. If an account is held by an entity, the bank will be required to obtain the individual taxpayer's tax identification number. While the IRS will remove QIs from the program, Shulman said the agency's goal is to get banks into compliance with the QI program.

  Shulman described an IRS summons that requires UBS to produce records identifying U.S. taxpayers with accounts hidden from the IRS between 2002 and 2007 (TAXDAY, 2008/07/02, I.8). He said the agency takes a multifaceted approach to combating offshore tax evasion, using information reporting about foreign financial accounts, working with other countries through treaties and tax information exchange agreements, and informants, who have been a valuable source of information for civil and criminal offenses.

  Justice Department Associate Attorney General Kevin O'Connor testified that the use of tax haven banks and offshore nominee accounts was a direct assault on the fundamental concept that U.S. taxpayers are taxable on their worldwide income, from whatever source derived. The Justice Department is equally concerned about the role played by tax professionals in designing and implementing tax evasion schemes.

  O'Connor cited a number of successful prosecutions of taxpayers for tax evasion and of those assisting them for conspiracy. The agency closely cooperates with the IRS Criminal Division and uses Mutual Legal Assistance Treaties (MLATs) to obtain information in criminal cases. O'Connor said the information that can be obtained under an MLAT sometimes is limited by countries with bank secrecy laws, but treaties and subpoenas are still available. Sen. John Kerry, D-Mass., asked why there is not greater transparency and greater pursuit of these practices. O'Connor said there are roadblocks, such as sovereignty issues.

Witnesses Demur

  The hearing included other theatrics. Four U.S. individuals accused of using the banks to hide income were called to the hearing. Two took the Fifth Amendment, one declined to appear, and the fourth was out of the country, although Levin said he is scheduled to appear July 25 before the subcommittee. One UBS official took the Fifth Amendment, and LGT declined to send a witness to the hearing. LGT distributed a statement to reporters defending its actions. Levin noted that the subcommittee lacks the power to compel testimony by either LGT or UBS.

By Brant Goldwyn, CCH News Staff

Senate Permanent Subcommittee on Investigations Press Release

Senate Permanent Subcommittee on Investigations Report: Tax Haven Banks and U.S. Tax Compliance
 

Tax Analysts report: